It’s a holiday-shortened week, so let’s jump right in.

On a macro front, it’s interesting to read that the G-30, an international group established in 1978 and composed of very senior representatives of private, public and academic circles, will be holding their 2008 plenary in Israel. Israel’s own Bank of Israel Governor, Stanley Fischer, will be hosting the group as part of Israel’s 60th anniversary celebrations.

Interesting interview of BigBand Network’s (BBND) CEO, Amir Bassan-Eshkenazi, and how he’s positioning the company to take on Cisco (CSCO). Read last week’s coverage of BigBand and why their positioning in the CMTS market may mean great things as they help determine the future of video delivery.

Google Israel (GOOG) is at it again. Now, they’re expanding into an additional 60m on the 21st floor of the Levinstein Building in Tel Aviv. Read about what IsraelNewsletter thinks is going on at Google Israel here.

Teva (TEVA) gets OK to sell generic version of Protonix. Although the Israeli generic powerhouse won the right to sell a version of Wyeth’s (WYE) Protonix, it may choose to hold off doing so until a full decision comes this Wednesday.

The Butler Group out with a new report saying that many medium- to large-sized ISVs (Independent Software Vendors) would benefit by leveraging Ness Technologies’ (NSTC) Managed Labs Offshore Delivery Model. Working with Ness allows ISVs to continue to beef up and speed up R&D while keeping costs manageable, said Butler. Read the whole report here. Check out IsraelNewsletter’s 4 Reasons to Go Long Ness Technologies as well.

TheStreet.com tries to decipher what’s going on at Medis Technologies (MDTL) through their options action.

Read IsraelNewsletter’s coverage of Blue Square-Israel’s (BSI) new foray into organic and health food.

In spite (because of??) all the M&A hullabaloo regarding ECI’s (ECIL) takeover by the Swarth Group, ECI wins a nice deal with India’s Bharti Airtel. Read what IsraelNewsletter has had to say about the impending ECI deal.

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Are we having fun yet?  Tough trading out there but Israeli companies continue to make news.

Answers (ANSW) getting nailed after predicting further widening losses next quarter.

Orckit (ORCT) wins $12 million in damages from Conexant (CNXT) covering damages incurred in the period from 2001 through 2003 from a supplier of semiconductor chips that was acquired by Conexant. The semiconductor chips were used in Orckit’s legacy DSL products.

Remember Backweb Technologies (BWEBF.OB)? They reported yesterday.

Internet Gold (IGLD) reports earnings.

The Street liked Cellcom’s (CEL) earnings report. See our recent coverage of Cellcom and the issues they face given Israel’s 120% cellular penetration.

Zoran (ZRAN), the maker of software and chips for digital media products, rose off an article in Barron’s. In the article, a Jefferies & Co. analyst said the stock may jump 50% in the coming year.

Still on the lam, Comverse’s (CMVT.PK) founder and previous CEO, Kobi Alexander still eludes extradition from Namibia to the U.S. for his connection in an alleged options backdating scheme. See why IsraelNewsletter may not agree with all the politicking going on but we do like the stock. Click here to read our previous coverage on Comverse.

Ness Technologies (NSTC) buying Italian software house, Selesta SpA.

Ormat Technologies (ORA) picks up an RBC upgrade to outperform.

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By Zack Miller
IsraelNewsletter.com

This Friday, JPMorgan initiated coverage on Ness Technologies (NSTC) with an Overweight rating. Ness Technologies is a global provider of IT services and generates almost 50% of its revenues within Israel.

NSTC competes locally in Israel with companies like Malam, Matrix, Elbit (see our previous articles on Elbit), and Teldo. Ness also competes against multinational firms like Accenture, BearingPOint, CSC, EDS, IBM, and HP. Their offshore development group competes against Cognizant, TCS, Infosys, Wipro. They also compete against product development firms (think Persistent Systems) and against internal IT departments of potential clients.

JPMorgan enumerates 4 reasons why NSTC is poised for growth:

1. Penetrate North America and Emerging Markets: JPMorgan cites that 40% of global IT spending is spent in North America. Ness recognizes this opportunity and is looking to penetrate specific niche areas (like product development) which align with its existing domain expertise. NSTC is also focused on building out its presence in emerging markets like Eastern Europe and Asia. Having almost 50% geographic exposure to Israel has always been an issue surrounding Ness — it appears that NSTC is serious about diversifying its revenues globally.
2. Maintain Leadership Position in Key Verticals: JPMorgan is encouraged with NSTC’s leadership position in defense and government verticals in Israel and in Independent Software Vendors in the US. NSTC can leverage these leadership positions to expand geographically and build competencies in other verticals. Ness and Israel are on the cutting-edge of defense technologies and certainly can parlay this experience into competing for US Department of Homeland Security spending dollars.
3. Maintain Long-Term Client Relationships and Build Out Offshore Presence: Ness is attempting to lock-in customers into longer-term relationships, representing a more annuity-type revenue stream. JPMorgan cites that repeat clients represent 85% of the company’s revenue in Q107. The banking firm is also encouraged by Ness’ focus on building-out its low-cost delivery capabilities, particularly in India and Eastern Europe. This will take the lumpiness out of NSTC’s revenues and allow Ness to pursue lumpy contract work for the US Department of Homeland Security.
4. Pursue Strategic Acquisitions: So far, Ness has pursued small tuck-in type acquisitions to build delivery competence, penetrate new geographies, or expand its service line/industry vertical capabilities. JPMorgan expects the company to continue along this path.

That said, all is not clear sailing for Ness. JPMorgan expects a soft second quarter due to Jewish holidays in Israel, some coninued weakness in US and India business. Down from a high of 17 in late ‘06, NSTC hasn’t performed well in 2007. Margins may be compressed in the near future (due to Rupee appreciation and Israeli commercial biz) and need to trend higher for investors to start feeling more comfortable in the stock.

JPMorgan likes the stock for investors seeking one of the best Israeli IT companies expanding internationally with good Free Cash Flow and a strong balance sheet (A 35% increase in backlog probably helps as well).

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Disclosure: Author’s fund is long NSTC as of 6/1/07.

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